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The exact value for European options on a stock paying a discrete dividend

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Author Info
Amaro de Matos, Joao
Dilao, Rui
Ferreira, Bruno

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Abstract

In the context of a Black-Scholes economy and with a no-arbitrage argument, we derive arbitrarily accurate lower and upper bounds for the value of European options on a stock paying a discrete dividend. Setting the option price error below the smallest monetary unity, both bounds coincide, and we obtain the exact value of the option.

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File URL: http://mpra.ub.uni-muenchen.de/701/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 701.

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Date of creation: 02 Jan 2006
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Handle: RePEc:pra:mprapa:701

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Related research
Keywords: European options Black-Scholes economy.

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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References listed on IDEAS
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  1. Merton, Robert C, 1976. "The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns," Journal of Finance, American Finance Association, vol. 31(2), pages 333-50, May. [Downloadable!] (restricted)
  2. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June. [Downloadable!] (restricted)
  3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
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This page was last updated on 2008-11-18.

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